6-6
TABLE 6-3 Debt Ratios, 1992 - 1997 (numbers in parentheses are the number of companies in the Industry sample)
Standard & Poor's 400 Industrials: Debt to total assets* (%) Times interest earned
27%
-19%
-40%200%
76%
28%
-20%
2100%%
78%
29% 100-%21%
200%
220%
81%
30%
-22%
230%
83%
30%
-22%
Financial leverage (debt/equity)
240%
86%
31%
-23%
Boom ROIC = 28%
Expected ROIC = 12%
IБайду номын сангаасterest expense
Principal payment
Common dividends
Stock
Aftertax Before Tax $16
Bonds
Aftertax Before Tax $52
$40
67
$55
92
33
55
25
42
Irwin/McGraw-Hill
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
1992
20 3.0
12 5.8
35 (0.9)
57 1.7
1993
19 3.4
14 7.1
34 0.2
47 2.1
1994
20 5.1
13 6.2
36 0.5
45 2.4
1995
20 5.0
14 4.4
32 2.0
43 1.1
1996
20 5.6
25 4.9
23 3.4
46 0.4
1997
20 5.5
24 9.3
21 6.4
43 0.8
Irwin/McGraw-Hill
Continued
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
6-7
TABLE 6-3 (Concluded) Debt Ratios, 1992 - 1997 (numbers in parentheses are the number of companies in the industry sample)
Bust ROIC = -4%
300%
400%
Irwin/McGraw-Hill
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
6-3
TABLE 6-1 Selected Information about Harbridge Electronix’s Financing Options in 2000 ($ millions)
Percentage EBIT
Coverage Can Fall
18.8x
95%
5.8x
83%
3.6
72
2.1
5.2
2.2
55
1.6
38
Irwin/McGraw-Hill
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
6-5
Harbridge Electronix Analysis of Coverage
Times interest earned Times burden covered Times common covered
Stock
Percentage EBIT
Coverage Can Fall
Bonds
Chapter 6
The Financing Decision
Irwin/McGraw-Hill
6-2
FIGURE 6-1 Leverage Increases Risk and Expected Return
Return on equity
Leverage Increases Risk and Expected Return
50% 52%
19%
-11%
20%
-12%
110%
20%120%
54% 57%
21%
-13%
22%
-14%
130%
59%
22%
-14%
0%114500%%
62% 64%
23%
-15%
24%
-16%
160%
66%
25%
-17%
-20%170%
69%
26%
-18%
180%
71%
26%
-18%
190%
74%
55
Common shares outstanding
Dividends paid
65
50
33
25
Irwin/McGraw-Hill
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
6-4
TABLE 6-2 Harbridge Electronix Financial Obligations in 2000 ($ millions)
Stock Financing Bond Financing
Interest-bearing debt outstanding
$160
$460
Shareholders’ equity (book
1,120
820
value)
Interest expense
16
52
Principal payments
40
140%
0.28
0.12
-0.04
120%
0%
28%
12%
-4%
100%10%
30%
13%
-5%
20%
33%
14%
-6%
30%
35%
14%
-6%
80%40%
38%
15%
-7%
50%
40%
16%
-8%
60%
60%70%
42% 45%
17%
-9%
18%
-10%
80%
47%
18%
-10%
40%90%
100%
Aerospace/defense (4) Debt to total assets (%) Times interest earned
Airlines (4) Debt to total assets (%) Times interest earned
Broadcasting (Television, Radio & Cable) (5) Debt to total assets (%) Times interest earned